Charities have reacted angrily to an indication by David Cameron that some money from the overseas aid budget could be used to fund military operations.

The Prime Minister, on his way back from India, suggested some of the £10bn set aside for aid could be spent on peacekeeping and other projects related to defence.

But Oxfam's head of policy Max Lawson insisted the money should go on "hospitals and not helicopter gunships" amid fears the cash will be diverted from the needy.

Mr Lawson said: "The millions of people up and down the country who support the fantastic stance the Government is taking, protecting the aid budget when every other G8 nation is not doing that, they expect this to be spent on schools and not soldiers. So we cannot see any penny diverted into the military."

He called for more money to be raised from cracking down on tax avoidance so that Government is not forced into "insane choices between the safety of a family and their health and education".

Sorcha O'Callaghan, head of humanitarian policy at the British Red Cross, added: "Blurring the lines between aid and military objectives will not only reduce the resources available to meet the needs of the most vulnerable, it also risks the access and safety of aid workers."

Overseas aid, the NHS and schools have all so far been shielded from the austerity measures and are set to be ring-fenced again in the next Spending Review, due in June.

David Cameron on his India trip

But Mr Cameron is under pressure from Tory backbenchers to reassess his stance as other departments battle to achieve major cuts.

He has pledged to meet the United Nations target of spending 0.7% of national income on overseas aid, which Britain will meet for the first time in 2013.

However, campaigners fear he could meet the pledge while still reducing the funds available for aid activities, by reallocating some of the responsibilities of the Ministry of Defence or Foreign Office to the Department for International Development.

Their concerns were fuelled by Mr Cameron saying security initiatives could be an "important" use of aid funds if they are needed before development can start.

Asked whether he felt there was room for money in the aid budget to be spent on defence activities, the PM said: "I think we have to demonstrate that the DfID budget is spent wisely."

He added that International Development Secretary Justine Greening was "rightly keen" to focus on countries which have been affected by conflict and war.

"We should be thinking very carefully about how we help states that have been riven with conflict and war," he said.

"I think it is obviously true that if we can help deliver security and help provide stability and help with stabilisation, that is the basis from which all development can proceed.

"And I think what is very healthy about this Government is that DfID is no longer seen as - and neither does it see itself as - a sort of giant NGO. It is very much part of the Government - it is part of the National Security Council.

"DfID and the Foreign Office and the Defence Ministry work increasingly closely together. If you are asking me can they work even more closely together, can we make sure that the funds we have at our disposal are used to provide basic levels of stability and security in deeply broken and fragile states, then I think we should. That is an important part of development.

"There is the conflict pool which we already use. Can we do more, can we build on this approach? I am very open to ideas like that.

"We have our moral responsibilities for tackling poverty in the world. We also have national security responsibilities for mending conflict states and helping with development around the world and we should see DfID in that context."

Tory MP Patrick Mercer, a former Army officer, said: "So much of the aid we have attempted to spend in the past in places like Iraq and Afghanistan has not been delivered as effectively as it might because of the lack of a benign security environment.

"If that means more money has to be spent on defence in order to increase the efficacy of overseas aid spending, I'm all for it."